Gold ETF Assets May Soar 17 Times in India as Refuge Demand Drives Price

Gold held by exchange-traded funds in India, the world’s biggest buyer of bullion, may surge as much as 17 times in the next three years as investors seek a refuge from financial turmoil and inflation.

Assets may reach “100 tons to 200 metric tons” from 12 tons now, said Rajan Mehta, executive director of Benchmark Asset Management Co., which runs the nation’s first and biggest gold exchange-traded fund. “The growth will definitely be faster than what we have seen in the past.”

Investors globally bought 291.3 tons of gold in ETFs in the second quarter, the second-highest amount on record, as prices climbed to an all-time high of $1,265.30 an ounce during the sovereign-debt crisis in Europe, the producer-funded World Gold Council said on Aug. 25. London-based researcher GFMS Ltd. and Goldman Sachs Group Inc. expect gold to advance to $1,300 this year as the metal heads for a 10th straight annual gain.

India’s seven bullion-backed funds had 19.7 billion rupees ($420 million) in assets on July 30, more than double the amount a year earlier, according to the Association of Mutual Funds in India. Increased inflows may help support prices.

Investment demand for the yellow metal in India more than tripled to 92.5 tons in the six months ended June 30 from 25.4 tons, the council said.

“These are significant numbers and these are beginnings of trends that one will see and hopefully these trends will be long trends, mega trends,” Rujan Panjwani, president at Edelweiss Capital Ltd., said Aug. 27.

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Exchange-traded funds have become popular worldwide since their creation in 1993 as they widened investors’ access to different type of assets. Gold ETFs allow investors to trade bullion without taking physical delivery of it.

Holdings in the SPDR Gold Trust, the biggest exchange- traded fund backed by bullion, expanded to a record 1,320.44 tons in June, and were at 1,298.56 tons as of Aug. 27, according to the company’s website.

“Today the industry has only 12 tons, which is very small compared with volumes all over India,” Benchmark’s Mehta said in an interview in Goa. “There is a lot of room to grow.”

Benchmark’s Gold Bees had 9.85 billion rupees in assets on July 30 and has returned 19.6 percent annually since its launch in March 2007, according to its website.

Indian gold funds have gained an average 19 percent in the past 12 months, compared with a 25 percent jump in local prices, Bloomberg data show.

Futures in India reached an all-time high of 19,198 rupees ($410) per 10 grams on June 8. The metal for October delivery advanced as much as 0.2 percent to 18,928 rupees on the Multi Commodity Exchange of India in Mumbai.

“Gold has delivered good returns, so normally many advisers feel safer in advising gold as part of asset allocation,” said Mehta. “Gold as an investment theme is gaining ground.”

To contact the reporter on this story: Madelene Pearson in Mumbai on mpearson1@bloomberg.net

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